December 15 vs. December 16and how the energy market behaved»

C3S symposium for the Energy Sector

Dr. Matthias Piot, Dr. Christoph ElsässerEnBW AG, Analyses and Evaluations TeamBarcelona, 22.02.2017

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What a trader sees…

Source: Thomson Reuters

Information platforms like Reuters, Bloomberg…

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T°C, wind, solar, demand, …

Public Information: Independent weather providers:

Weather signals in December 2015

Issued in Oct‘15

Issued in Nov‘15

Issued in Dec‘15

Seasonal predictions

Source: CFSv2, NCEP

A steady, warm signal throughout Europe was captured 2 months in advance:

Sub-seasonal predictions

Issued on Nov 25th

Observations:

Very warm / windy December:Germany: +3,5°C Wind: +3 GW (+20%)Stuttgart: +5,2°C

→ Good performances of S2S-Signals

Source: WSI

Week 3

Week 4

Week 5

Question mark: Super El Nino 2015 and T°C

Generally accepted: Correlation El Nino / NAO ≈ 0,2 (weak)

How do climatologists interpret this signal? Re-evaluation of ENSO-effect on European weather?

High correlation ENSO vs. T°C in northern Hem. (0,8)

Weather signals in December 2016

Issued in Oct‘16

Issued in Nov‘16

Issued in Dec‘16

Seasonal predictions

Source: CFSv2, NCEP

Volatile and controversial signals for temperatures and wind generation:

Sub-seasonal signals Observations:

Suppressed Jet Stream in December:Germany: -0,1°C Wind: -6 GW (-40%)Stuttgart: -0,7°C

→ Poor performances of S2S-Signals, consideration of teleconnections?

Source: WSI

Issued on Nov 30th

Week 3

Week 4

Week 5

December 2016Teleconnection signals

Stratospheric polar vortex

Situation in the stratosphere not well integrated by current models?

Can we enhance the integration/understanding of teleconnection signals in S2S-models?

Earliest SSW on record

Courtesy: MetDesk

Impact on the Energy MarketsDec15 vs. Dec16

Evolution of weather has a direct and significant impact on volatility and trend in energy markets

2015:- Low volatility- Clear downward market trend- Low trading interest

2016:- Boost in volatility- Uncertain market view (more usual)- Exacerbated by French nuclear fleet issues

Our message…

December 2015: very warm and windy

- Well predicted by S2S-models

- Induced a low trading interest (low price volatility) and a steady price decline

December 2016: rather calm but also more uncertain

- High model uncertainty even just before the start of month

- High price volatility with ever changing price direction

Significant relationship between S2S-model output and market behavior

Performances of S2S-models is key to trading and portfolio management success

Model consistency and performances need improvement to reinforce growing trust and use from the energy sector